Public Bill Committee

[Sir Nicholas Winterton in the Chair]

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)

Nicholas Winterton: I welcome all Committee members to the 17th sitting of the Committee, and I hope that they have had a good, productive and restful weekend. Last Friday evening I attended a dinner on the race course at Chester. It was the Chester and Cheshire tourism awards, and my borough of Macclesfield picked up three of the 15 awards, so I am pleased—[Hon. Members: “Hear, hear.”] Anyway, back to business.

Schedule 36

Information and inspection powers

Nicholas Winterton: I call Mr. Philip Hammond to move amendment No. 244.
Mr. David Gauke (South-West Hertfordshire) (Con) rose—

Nicholas Winterton: I see that it is in fact Mr. David Gauke who will move the amendment.

David Gauke: I beg to move amendment No. 244, in schedule 36, page 352, line 40, leave out ‘has’ and insert ‘and the taxpayer have’.

Nicholas Winterton: With this it will be convenient to discuss the following amendments: No. 245, in schedule 36, page 353, line 1, after ‘opportunity’, insert
‘to produce the information or document and’.
No. 246, in schedule 36, page 353, line 3, leave out ‘a summary of’.
No. 247, in schedule 36, page 353, line 15, at end insert—
‘(6) No notice shall be given by the First-tier Tribunal unless the person to whom the notice is addressed and the taxpayer have been given notice of a hearing at which the Tribunal is to consider the issue of the notice and have been given an opportunity to attend the hearing and make representations.’.
No. 248, in schedule 36, page 354, line 13, leave out ‘may’ and insert ‘must’.
No. 249, in schedule 36, page 354, line 22, at end insert
‘(such period to be at least 30 days)’.
No. 250, in schedule 36, page 354, line 30, after ‘solely’, insert ‘or substantially’.
No. 251, in schedule 36, page 355, line 4, after ‘period’, insert
‘(such period to be at least 30 days)’.
No. 270, in schedule 36, page 371, line 45, leave out ‘present and future liability’ and insert
‘or present liability or any future liability to the extent that it depends in whole or in part to any past or present transactions’.

David Gauke: No doubt it would have been a greater pleasure to call my hon. Friend the Member for Runnymede and Weybridge, Sir Nicholas, to speak to the amendment, but I am delighted to serve under your chairmanship once again. I am grateful for your reminder us that this is the 17th sitting, although that shows how time slips by when one is having fun. I had not realised that our considerations have been so lengthy. I am also delighted to hear about Macclesfield’s success at Chester, where I spent a happy year at law school. Having spent a little more time there in recent weeks, I know it to be a fine county. [Interruption.] It is the finest county, although Oxfordshire is also pleasant. I confess that I am struggling slightly with a cold, Sir Nicholas, so if the volume of my speech drops below a certain level, I am sure that you will not be remiss in requesting that I speak up.
Last week, we debated paragraphs 1 and 2 of schedule 36, and I said that although the powers were rather broad with regard to taxpayer notices and third party notices, our main concern was that the safeguards under paragraph 3, to which many of the amendments relate, are key in determining whether the opening paragraphs of schedule 36 strike the right balance between the ability of Her Majesty’s Revenue and Customs to issue notices requesting information and documents and the rights of taxpayers and third parties to protect their position.
Paragraph 3 sets out the circumstances in which taxpayer notices and third party notices may be issued and provides a framework for that. It is worth focusing on two points in the amendments tabled by my hon. Friend the Member for Runnymede and Weybridge and myself. With regard to amendments Nos. 244 and 245, it is worth explaining how paragraph 3(3) will work. Paragraph 3(3)(c) states that a first-tier tribunal may not approve the giving of a taxpayer notice or third party notice unless
“the person to whom the notice is addressed has been told that the information or documents referred to in the notice are required and given a reasonable opportunity to make representations to an officer of Revenue and Customs”.
In circumstances in which a taxpayer notice is served, that paragraph appears to be reasonable, because the taxpayer will be given that notice and will have a reasonable opportunity to make representations. However, professional bodies have highlighted their concerns about circumstances in which that relates to a third party notice. In other words, the third party must be notified that information or documents are required, and be given a reasonable opportunity to make representations to a Revenue and Customs officer. As the provision stands, in such circumstances, the taxpayer will not be informed of the notice or have the opportunity to take any action in response to it. Consequently, the amendment suggests that not only the third party, but the taxpayer, should be informed of the issue, have a reasonable opportunity to make representations and the opportunity to produce the information or documents.
This discussion leads me to one of the broader themes with regard to paragraph 3. I said last Thursday that this is an important part of the Bill. It deals with everything to do with powers, particularly schedule 36. This is a good opportunity for the Minister to make it clear how these powers will be used in practice. We expressed our view that it would be better if some of the protections and the difficulties with guidance were contained in statute. None the less, comments from Ministers with regard to those powers provide useful guidance.
We expect Her Majesty’s Revenue and Customs, where possible, to work co-operatively with taxpayers and third parties when using the powers conferred under paragraphs 1 and 2 and the framework of paragraph 3. When notices are issued, we expect that HMRC will be keen that the taxpayer should co-operate and provide documents or information on a voluntary basis. We hope that HMRC will not use all its powers in the most aggressive manner as a matter of course, and that they will be used as a last resort when the taxpayer does not co-operate. We recognise that there are be circumstances in which taxpayers do not co-operate, and that is the purpose of the powers.
As I mentioned on Thursday, having talked to a former senior official at HMRC, often the tendency is for an investigating officer to use the powers available to the limits, which is why we are concerned about these powers. In responding to my comments on amendments Nos. 244 and 245, it may be appropriate for the Financial Secretary to address the general issue of how HMRC will use the powers, and whether it will expect taxpayers and third parties to co-operate before using the powers to their utmost.
Amendment No. 246 leads us to the important issue of rights of appeal. It is worth noting that paragraph 3(1) states:
“An officer of Revenue and Customs may not give a third party notice without
(a) the agreement of the taxpayer, or
(b) the approval of the First-tier tribunal.”
The first option deals with my point about co-operation. However, when the approval is granted by the first-tier tribunal, there is no particular right of appeal. In such circumstances, it is important that we have the necessary protections in paragraph 3.
I have two points to make on amendment No. 246. First, the first-tier tribunal should obtain all the facts when determining whether permission should be granted to HMRC. It is not acceptable, therefore, that under the current provisions, the first-tier tribunal receives only a summary, prepared by HMRC, of representations from the relevant person. Why should the first-tier tribunal not have the representations as a whole? What is the purpose behind the word “summary”? It does not appear to save HMRC any time. Why should such a full representation not be given to the first-tier tribunal?
The broader issue is addressed in amendment No. 247, which states:
“No notice shall be given by the First-tier Tribunal unless the person to whom the notice is addressed and the taxpayer have been given notice of a hearing at which the Tribunal is to consider the issue of the notice and have been given an opportunity to attend the hearing and make representations.”
Given that there is no real right of appeal, the initial decision at least by the first-tier tribunal should be made in such a way that there is due process. There should be an opportunity for the relevant parties to make representations to attend a hearing and then the first-tier tribunal can make the decision. If the decision is that the notice is correct and appropriate, so be it. At the moment we have a system where, essentially, we go straight to the first-tier tribunal. The only representations it will receive from somebody who disputes the process will be through a summary prepared by HMRC of the representations made by one of the parties.
I referred earlier to amendments Nos. 244 and 245.

Nick Palmer: Before the hon. Gentleman moves on to the next group of amendments, does he not agree that they are addressed by paragraph 4? Amendment No. 244 requires that, if a third party is approached, the taxpayer should be informed, but that requirement is specifically covered under paragraph 4 on page 353.

David Gauke: There is a requirement, which can be disapplied, to provide a copy of the notice, but it does not go on to give the taxpayer the opportunity to produce the information or documents or to make representations. Amendment No. 244 must be read in conjunction with amendment No. 245. In a way, the hon. Gentleman makes a valuable point in favour of amendment No. 245. If the taxpayer is to be given that notice, he should have the opportunity to make representations, or to produce the information or document. For the sake of completeness, amendment No. 244 is still valid. The hon. Gentleman’s comment strengthens the case for amendment No. 245, so I am grateful for his intervention.
A potential objection to amendments Nos. 244 and 245 is that providing the information to the taxpayer may prejudice the assessment or collection of tax. If there is a concern that the taxpayer is involved in fraudulent activity, the view could be taken that he should not be told about that concern, and one would go to the third party, whether a bank or the taxpayer’s adviser, and seek to obtain information or documents that way. It is worth drawing the Committee’s attention to paragraph 3(4) which states:
“Paragraphs (c) to (e) of sub-paragraph (3) do not apply to the extent that the First-tier Tribunal is satisfied that taking the action specified in those paragraphs might prejudice the assessment or collection of tax.”
There is therefore a protection in the Bill that addresses a legitimate concern on the Government’s part.
Amendment No. 248 deals with what should be in an information notice, which covers taxpayers and third parties. Paragraph 6 says that the
“information notice may specify or describe the information or documents to be provided or produced.”
Given that the purpose of such notices is to specify that information or those documents—it would be difficult to comply with them if they did not—the word “may” is inappropriate, and we suggest that it be replaced with “must”. If the Financial Secretary can describe circumstances in which a notice would not include that information, we will happily withdraw the amendment. However, that wording appears to be controversial.
Amendment No. 249 addresses the question of how long a period someone has to provide information or produce a requested document. At the moment they have as long
“as is reasonably specified or described in the notice.”
No doubt there will be some guidance to flesh that out, but we see no reason why some certainty should not be included. Parliament should have the opportunity to specify the time period. We suggest at least 30 days. We are not wedded to a particular period, but I would be grateful if the Financial Secretary told us why none is specified.
Amendment No. 250 refers to the first mention in the schedule of
“a place that is used solely as a dwelling.”
We will perhaps return to that at greater length under paragraph 10. Lots of properties are dwellings, but are not used solely as such. More and more people work from home. I suspect that most of us take work home, and therefore our homes would not satisfy the test of being solely used as dwellings. Perhaps the Financial Secretary could expand on that.

Philip Hammond: I am listening carefully to my hon. Friend. I understand that in planning law, it is established practice that one room can be used for business purposes without changing that dwelling’s planning status. Does my hon. Friend think that that definition should be applied: a dwelling used as a dwelling, but in which up to one room is used as, for example, a Member of Parliament’s constituency office or a small business’s administration office?

Stephen Pound: Somewhere for nanny, perhaps?

Philip Hammond: What the hon. Member for Ealing, North pays himself as rent might be of interest to others, but I am sure that it is of no concern to the Committee. Does my hon. Friend the Member for South-West Hertfordshire agree that that might be the appropriate way to define a dwelling for those purposes? That would ensure that the man in the street’s understanding of a residential property is protected, which we hope is what is intended.

David Gauke: I am grateful to my hon. Friend for that useful suggestion, and I ask the Financial Secretary to provide greater clarification about what is meant by the phrase,
“used solely as a dwelling”.
Amendment No. 250 suggests that the wording should be expanded to cover a place that is used “solely or substantially” as a dwelling. The pattern of work is changing. Technological advances make it easier for more people to work from home. The Government recognise that a dwelling should be treated differently, and there is sensitivity about a dwelling being a place from which documents or information should be handed over. Perhaps the Financial Secretary can explain why there is such sensitivity; we certainly recognise that it exists.
I wonder whether the definition,
“used solely as a dwelling”,
is too tight, and whether the family home would be used in these circumstances, when that is probably not the Government’s intention. Greater clarification would therefore be helpful, although I am sure that we will return to this issue in our discussions of paragraph 10. Amendment No. 251 makes a similar point to amendment No. 249 about the period of time in which documents must be produced. Again, we have suggested at least 30 days. There might be a case for saying that the period for producing copies should be shorter than the period it takes to produce the original documents, but we will listen to the Government’s arguments.
Turning to amendment No.270, which jumps us forward to paragraph 62, which has given rise to a certain amount of comment. It deals with the important definition of “tax position”, which runs through this schedule, and refers to someone’s position
“as regards past, present and future liability to pay any tax”.
We have no difficulty with past or present liability to pay tax, but future liability is a rather curious concept—I am not sure about this and the Minister will correct me if I am wrong—that is recognised as giving HMRC particular powers. Is it right that HMRC that can make use of the various powers set out in schedule 36 with regard to future liability, which is a tax liability which does not exist at the time at which those powers are used? I do not know whether this signals a more fundamental change to our tax system, but we have proposed an amendment which is reasonable and not absolutist. We refer to any past or present liability
“or any future liability to the extent that it depends in whole or in part to any past or present transactions”,
which addresses the Minister’s legitimate concerns. We would be grateful if she enlightened the Committee about the thinking behind the proposed working definition of “tax position”. We look forward to what the Minister has to say regarding this first group of amendments.

Nick Palmer: May I speak briefly to amendments Nos. 244 to 247, which seem to be a bit of a drafting mess, with due respect.
The position in the Bill seems balanced and clear. Paragraph 3 of schedule 36 discusses the issuance of third-party notices, with the due safeguards to which the hon. Member for South-West Hertfordshire referred. Sub-paragraph (4) requires that the taxpayer should be informed unless there is a good reason why not. Amendment No. 244 somewhat duplicates sub-paragraph (4) but amendment No. 247 goes further and requires that
“No notice shall be given...unless the person to whom the notice is addressed and the taxpayer have been given notice of a hearing...to consider the issue of the notice”.
Contrary to what the hon. Gentleman told us earlier, amendment No. 247 is not qualified by sub-paragraph (4). In other words, even if the first-tier tribunal believes that the actions would prejudice the assessment or collection of tax, that would not apply to his new sub-paragraph.

David Gauke: I concede that the hon. Gentleman raises a fair point. As I was reading through the amendments again, I could see the difficulty that he mentioned. I do not quibble with what he is saying. Making amendment No. 247 subject to the provisions of paragraph 3(4) could improve the measure.

Nick Palmer: I am grateful to the hon. Gentleman for his open-mindedness. I think that we agree on what we are trying to achieve: the taxpayer should be informed, unless there is good reason why he should not be. As it stands, the wording of paragraph 3(3) together with paragraph 3(4) covers that. I encourage him to consider withdrawing the amendments relating to those. I will not address the others.

Jane Kennedy: It is a pleasure, Sir Nicholas, to be here this morning serving under your chairmanship. Many of us would claim that our boroughs were “our” boroughs, but few with the authority that you can with Macclesfield. I congratulate Macclesfield on its success at the weekend.
I cannot disagree with a word that my hon. Friend the Member for Broxtowe has said and will come to the detail of that amendment shortly. The hon. Member for South-West Hertfordshire moved several amendments out of a concern that I have heard expressed by a number of people as the powers have been developed and the consultation has gone through the usual process. His questions deserve a proper and reasonable answer.
Once again, the amendments all seek to add extra safeguards to the provisions about information powers. In a broader debate last Thursday, we talked about the overall aim of the changes that schedule 36 introduces. The amendments would reduce flexibility and affect HMRC’s effectiveness, particularly in dealing with the minority of taxpayers who do not wish to comply. To safeguard the majority, it is important that I set out what HMRC’s intent is.
Tribunal approval is required before an information notice can be issued to a third party. Amendments Nos. 244 and 245 seek further safeguards to require the taxpayer to be informed and, in addition, to enable them to make representations to the third party. In practice, there are two situations in which HMRC needs to approach third parties. The first involves a taxpayer who may have a gap in their records, but is otherwise generally compliant, and information is being sought to fill that gap. In those situations, HMRC would normally ask the taxpayer to obtain the information from the third party. There may be occasions in which the third party would refuse to provide that information to the taxpayer, so the notice is needed. In those circumstances, the taxpayer would be aware that a notice had been issued and of what it was requesting.
The second situation is where a taxpayer is suspected of concealing the truth from HMRC. HMRC then has to verify the true position with evidence from third parties. In such a situation, tax could be prejudiced if the taxpayer were made aware of HMRC’s intentions. Therefore, the amendment does not add a great deal to the Bill for compliant taxpayers, as they have already had the chance to discuss matters with HMRC and to influence the notice. Where a deliberate mis-declaration of tax was suspected, the amendment would be overridden by paragraph (3)(4) in the way that my hon. Friend the Member for Broxtowe described.
HMRC will be able to ask for information from a third party only with the consent of either the taxpayer or the independent tribunal. Amendment No. 246 seeks to replace the requirement to give the tribunal a summary of representations, replacing that with a requirement to provide full representations. Summaries are often better as they highlight the salient facts and can explain complex matters in plain English. HMRC does use plain English. Some representations are made verbally——[Interruption.]Or, indeed, in a foreign language. It would be an extra burden to make taxpayers put them in writing, especially low-income tax payers.
A summary must include all the facts and must not omit any issues. Existing case law shows that a notice is vulnerable under judicial review if HMRC has not made the tribunal properly aware of all representations it has received. Where the tribunal wished to see full representations, therefore, it would be able to do so. Where the taxpayer’s representations are in writing and set out their case, the officers would just provide a copy of the representations to the tribunal. The amendment does not therefore give any better protection and it could be worse for some more vulnerable taxpayers. I understand, however, the reason behind the questions that have arisen from the legislation.
Amendment No. 247 seeks to give taxpayers and recipients of notices a right to make representations in person to the first-tier tribunal. This is really a matter for the Ministry of Justice to decide upon, not something for a Finance Bill. However, HMRC is exploring this with the new tribunals. The consideration will be taken forward once the tribunals are established. There are difficulties over taxpayer confidentiality and prejudicing the case where the third party and taxpayer are present for the whole hearing. Members of the Committee can imagine what those would be. We do think that it would be helpful for parties to make their representations in person to the tribunal as that would allow the tribunal to clarify particular points and ask questions. In principle, therefore, we think this is fine.
Amendment No. 248 seeks to restrict the scope of information notices by replacing “may” with “must”, as described by the hon. Member for South-West Hertfordshire. Where HMRC knows the nature of the information and the documents, they will be specified but there are times when the exact nature is not known so the notice will need to be worded a little more vaguely. For example, a notice might say, “all documentation relating to the sale of the White house in New Town”. Or it might say, “details of all company cars purchased in 2009”.
As far as possible, HMRC will limit the scope. For example, I know there has been concern where a company was required to send in all e-mails from a particular year. That clearly goes far wider than is necessary or of benefit to anybody. There is no intention on the part of HMRC to seek that width of information. There is certainly no intention on the part of HMRC to do the job of accountants. The only purpose of seeking information and being vague would be because they did not know the exact definition. I hope my examples give an indication of the sort of information that will be sought.

Peter Bone: It is a pleasure, Sir Nicholas, to serve under your chairmanship. When I was in practice dealing with these matters, especially on investigations, the Revenue would employ very wide definitions when in fact they could have been much tighter. I have seen no evidence in practice, therefore, that the Revenue is doing that.

Jane Kennedy: I am aware of one example in particular where a bank was asked for all e-mails. I do not quarrel with the hon. Gentleman’s experience but this has been the practice in the past. I said earlier that the changes that are being made—the reforms we are making to the powers—mean that, in some areas, HMRC accepts that it must rein back those powers. It is not in its interests to have that huge range of information, which must require huge resources to work through. Its whole purpose is to make sure that the appropriate taxes are paid, not to impose unnecessary burdens on business.

Nick Palmer: I share the concern that we do not open a loophole to allow, as the Minister says, a requirement for all e-mails over the last year, or something like that. This section is qualified, though, by the original paragraph 1, which says:
“the information is reasonably required by the officer for the purpose of checking the taxpayer’s tax position”.
I assume the tribunal would refuse to allow a notice where some ridiculous request was made.

Jane Kennedy: Indeed, that would be my expectation and as we discussed before, HMRC is required to act “reasonably” and there is a very well understood meaning of that word.

Mark Field: Notwithstanding our discussion, which has been useful in focusing on where HMRC is trying to operate, given the concerns expressed in our initial debate last week about fishing expeditions, where is the incentive for HMRC to have as narrow a focus as possible? Is it possible to construct a financial disincentive? Since some administrative costs would clearly be incurred in a larger inquiry than was strictly necessary and genuinely reasonable, could we ensure that any party that lost out or incurred significant administrative costs as a result of such an inquiry could be compensated? My concern is the lack of any incentive for HMRC to behave in a narrow, focused way.

Jane Kennedy: That is a very fair point. The incentive is the pressure——the requirement——on HMRC, to act in every way as efficiently as possible. Even if it was charging for the administrative costs, it has finite human resources and if its human resources were deployed in that way, it would seem to me, as the Minister to whom it is accountable, that that is not the best use of the resources available and that it could deploy them to areas of greater risk. The requirement on HMRC to act reasonably, in my view, includes a reasonable use of the resources HMRC has at its disposal. I hope that in our brief discussion this morning I have explained the purpose behind the reforms and why I think the amendment is unnecessary, although I appreciate the spirit in which it was moved.
Amendments Nos. 249 and 251 are too inflexible in insisting that 30 days should always be given for the production of documents and information. In many cases, the information will be readily to hand and officers can use discretion in setting a time limit. They must act reasonably and be able to show that they have acted reasonably. The time allowed would usually be agreed with the taxpayer in advance.

Peter Bone: Again, going back to my experience, it used to annoy me enormously when we were served with a notice to supply a lot of documents within, say, 30 days. We would provide these documents, it would be a very long time before the Revenue ever bothered to get back to us and then they would serve us with another short period notice. Putting in a minimum of 30 days would be a safeguard that would not damage the Revenue but would be very helpful to people in business.

Jane Kennedy: I hear what the hon. Gentleman says. I am advised that HMRC, where it is appropriate and because there may be a lot of documents in deep storage that it needs to see, would often allow more than 30 days where it was necessary. His point would be covered if HMRC would deal in more co-operatively with the taxpayer, in the way we have just been discussing. I want to give some thought to his point and do some further probing of my own.

David Gauke: I am grateful to the Financial Secretary. She has given a reasonable response to my hon. Friend the Member for Wellingborough. She mentioned circumstances where documents will be readily available and where 30 days will therefore be too long. I acknowledge that point, but we are talking about a minimum. What does she think would be reasonable? Would it be reasonable for the documents to be handed over in 24 hours, 48 hours or is she talking about seven days? With documents that are not vast and which are readily available, what should be the minimum? After how long would it be reasonable for an HMRC officer to say, “Please hand it over.”?

Jane Kennedy: As I recall, there will be a greater requirement on taxpayers to have good documentation available. That ought to mean that it will be reasonable to demand it. This will be done on a case-by-case basis as the work develops. A change of culture is required in HMRC to make this work in the way that I am describing. There may be occasions when HMRC needs to ask for further documents. It would be unreasonable to impose a 30-day period on every occasion, particularly when the taxpayer is compliant and only wants to get their records in order.

Peter Bone: The Financial Secretary is describing exactly the problem that taxpayers face. They are asked for a huge amount of information, usually within 30 days. After they provide that information, six months goes by with nothing happening and with no information available to the taxpayer. They are then served with another 30-day notice for further information. This uneven-handed approach by the Revenue is wrong. I have seen no evidence that it is changing its practices.

Jane Kennedy: I want to give a lot of thought to what has been said on this issue, particularly by the hon. Gentleman who is bringing his own valuable experience to the Committee. As things stand, my strong view is that to require 30 days on every occasion is unnecessary and too restrictive. I will see what can be done to allay his concerns and to improve the experience of taxpayers that he describes.
On amendment No. 250, allowing no production of documents at a building substantially used as a dwelling would be impractical, particularly for VAT purposes. Where businesses are run from dual-purpose buildings, the term “substantially” adds no real protection as it needs interpretation. It will not be possible for HMRC to visit private residences that are not used for business purposes without the taxpayer’s consent. That has been a huge area of concern in business. The exceptions are in criminal investigation cases or for taxes not covered by the schedule.
In most cases, it is clear whether premises are for business or private use. We cannot set out every situation in legislation, but the legislation sets out the principal aim that HMRC should be able to inspect a business, but not a private home. The correct place to explore borderline cases and give examples is in guidance, which will be produced in partnership with taxpayer representatives. That is an approach taken by other public bodies that need to distinguish between businesses and private premises. One example is the council tax banding authority. It has been suggested that we use the same definitions as local authorities and I am open to that. HMRC will consult in full on the production of the guidance.
There is general concern from external commentators about the relevance of checking records for income tax and corporation tax before the tax return for the year in question has been completed, which amendment No. 270 seeks to address. The new powers under the schedule and the proposals we will be making in respect of time limits are designed to allow HMRC to make compliance checks on a cross tax risk-assessed basis.
The powers can be used without a tax return being issued and completed first. This is new for income tax, capital gains tax and corporation tax and it is true to say that it has not been universally supported in consultations. None the less, I am persuaded and HMRC certainly believes that it is essential to enable it to be flexible in the different circumstances that it encounters. HMRC should be able to ask simple questions of taxpayers who do not normally file tax returns, without putting them to the trouble of completing a tax return that might ultimately prove unnecessary. It should also be able to check those persons who do not submit returns because they trade in the hidden economy.
Where that is identified, it makes sense to approach the person, ask the questions and establish the tax that needs to be paid for all of the years concerned, rather than sending them a large number of years’ worth of income tax, VAT and pay-as-you-earn returns to complete. As I said earlier, good records are fundamental to accurate returns. HMRC should be able to check that the records that are kept will allow a correct return to be made. It is sensible that HMRC should be able to correct poor record keeping before incorrect returns are filed and penalties are incurred.
Furthermore, where there is a risk of evasion or serious abuse of the tax system and the taxpayer is likely to move on—as I have said, that does happen—HMRC cannot afford to wait for a return to be issued and completed, as it needs to act as soon as the risk is identified. In order to address all those circumstances, these powers have been designed to check a tax position, which has necessarily been defined in a wide sense. HMRC will only check things on a visit that it is legitimate to check. An officer will check whether records have been kept, which is an ongoing requirement, but they cannot assess tax that is not yet due. There is no need to enshrine that protection specifically, as it is already inherent in the legislation.
Overall, the amendments go too far in restricting HMRC’s ability to see information and documents, but I understand the motive behind their tabling. I appreciate that there are genuine concerns, which I hope I have been able to allay this morning. I hope that the amendment will be withdrawn.

David Gauke: We have had a useful debate. There is much that the Financial Secretary has said this morning that will be viewed with interest and probably welcomed in many quarters. Amendments Nos. 244 and 245, which should be taken together, make a reasonable point, particularly amendment No. 245. I shall not press either amendment to a vote, and I beg to ask leave to withdraw them, because the Financial Secretary has provided some reassurance as to how the powers contained in paragraph (3) will operate. I shall also seek leave to withdraw amendment No. 246, although I am not 100 per cent. persuaded—

Nicholas Winterton: Order. The hon. Gentleman does not have to announce that he will seek leave to withdraw anything but the lead amendment. If he wants to seek a Division on any of the amendments and makes a request to me in the Chair, I would certainly consider it. The only amendment that he need seek leave to withdraw is the lead amendment.

David Gauke: I am grateful, Sir Nicholas, for your guidance. I will indeed press for a Division on one of the amendments, but I will stop begging to withdraw the other amendments. On the requirement to give a summary, which we have queried, the Minister’s remarks are helpful. She said that where there are written representations, those will be provided to the relevant person. The summary will also be provided to the third party. That is helpful, and essentially addresses our concern. She points out that that will enable HMRC to provide the information in plain English. We are talking about the first-tier tribunal, which should be capable of understanding something a little more complex. I am therefore not persuaded by that argument, but the reassurances that she otherwise provided were helpful.
The appeal process is being worked out with the Ministry of Justice, which underlines my earlier point that many of these measures do not fit well with the Finance Bill. The appeal process is a broader issue. We will wait to see the outcome of those discussions, but I hope that the House of Commons will have the opportunity to look at the measures again, so that we can get the balance right. I am not convinced by the Financial Secretary’s response on amendment No. 248. She gave an example in which it would be too prescriptive to use “must” instead of “may”. In the circumstances to which she referred—she used the example of “the White house in New Town”—there is a description in the Bill of the information or documents to be provided, rather than a specification, and the arguments apply, whether we use “may” or “ must”. Having said that, what she said overall on the amendment was helpful. It is of some comfort that HMRC will not misuse the measure and engage in “fishing expeditions”, to use an expression deployed by my hon. Friend the Member for Cities of London and Westminster.
In amendments Nos. 249 and 251, I touched on the argument for greater flexibility regarding the time limit. We are talking about a minimum period, and the compliant taxpayer to whom the Financial Secretary referred may be able to respond more quickly. I know that HMRC will use its discretion, but greater guidance would be helpful. However, I will not press the amendment, nor will I press amendment No. 250, as we will return to the debate about the phrase, “used solely or substantially” as a dwelling when we discuss paragraph 10.
Finally, amendment No. 270 addresses future liability, and the use of the powers with regard to a tax return that is not yet due. The wording that we have introduced addresses the circumstances to which the Financial Secretary referred, where there is a need for HMRC to act early regarding the long-compliant taxpayer who may be about to disappear. At that point there will be a future liability in respect of past or present transactions, and I was therefore not persuaded that the Government proposals reasonably address the concerns of the professional bodies to which the Financial Secretary referred, or accommodate the needs of HMRC, which she outlined. When we reach paragraph 62 and amendment No. 270, I will press the amendment to a Division.

Nicholas Winterton: I assume that the hon. Gentleman wishes to seek leave to withdraw amendment No. 244, but is giving notice that he wishes seek a Division on amendment No. 270 when we reach that point. When we do so, I am happy to grant a Division on the amendment.

Amendment, by leave, withdrawn.

Jane Kennedy: I will move Government amendment No. 219 formally, as it may make it easier for the Committee if I simply do so and hear the case being made for the amendments that appear in the middle of the series of Government amendments. In responding, I can explain the thinking behind the Government amendments.

Amendment proposed: No. 219, in schedule 36, page 355, line 12, leave out ‘any’ and insert ‘a person’s’.—[Jane Kennedy.]

Nicholas Winterton: With this it will be convenient to discuss the following: Government amendments Nos. 220 and 221
No. 165, in schedule 36, page 355, line 18, at end insert—
‘(1A) For the purpose of this paragraph an inspection does not include the searching of premises or any personal effects.’
Government amendment No. 222, in schedule 36, page 355, line 19, leave out from ‘this’ to end of line 22 and insert
‘Part of this Schedule may be carried out only—
(a) at a time agreed to by the occupier of the premises, or
(b) if sub-paragraph (3) is satisfied, at any reasonable time.
(3) This sub-paragraph is satisfied if—
(a) the occupier of the premises has been given at least 7 days’ notice of the time of the inspection’.
Amendment (a) to the proposed amendment, in line 5, leave out ‘7’ and insert ‘14’.
No. 166, in schedule 36, page 355, line 22, leave out ‘24’and insert ‘72’.
No. 167, in schedule 36, page 355, line 24, leave out from first ‘the’ to end of line 25 and insert
‘approval of the First-tier Tribunal has been obtained under paragraph 11.’.
No. 168, in schedule 36, page 355, line 32, leave out from ‘person’ to end of line 34.
No. 169, in schedule 36, page 355, line 35, leave out from ‘state’ to end of line 36 and insert—
‘(a) the rights of the occupier of the premises that are to be searched, and
(b) the rights of any person to whom paragraph 10(1) may apply.’
Government amendment No. 223
No. 252, in schedule 36, page 356, line 3, after ‘records’, insert
‘so far as they relate to the business’.
No. 253, in schedule 36, page 356, line 5, at end insert ‘wholly or mainly’.
No. 254, in schedule 36, page 356, line 6, after ‘business’, insert
‘, or from which a business is substantially carried on’.
Government amendment No. 225
Amendment No. 269, in schedule 36, page 370, line 29, leave out sub-paragraph (3).
Government amendments Nos. 226 to 228.

Jeremy Browne: Good morning, Sir Nicholas. I will try to keep the tempo high, as the Minister indicated she would. Amendments Nos. 165 to 169 were tabled by my hon. Friends and myself. It might be helpful for the Committee if I go through the amendments systematically and explain the purpose of each of them in turn.
To be fair, the Government have demonstrated a willingness to be open-minded through some of their amendments. There has been some well-intentioned movement from the Government in response to representations from relevant outside bodies, which I am sure the Committee will broadly support. Amendment no. 165 defines the word “inspect” to prevent inspectors rifling through the drawers of people they choose to inspect. The drafting in the Bill is extremely wide and could conceivably allow HMRC greater access to the private possessions of the taxpayer who is being inspected than we would wish. The amendment would add a new sub-paragraph to paragraph 10(1), which would exclude the searching of premises—the intention is to cover non-business premises—and personal effects. Some of that was touched on in the discussions we had earlier this morning.
My party and I welcome Government amendments Nos. 220 to 222, especially the explicit exclusion of areas used solely as a dwelling, but our belief, nevertheless, is that the word “inspect” is not defined adequately. There is concern in some quarters that it may be interpreted in the broadest possible sense by those carrying out the inspections.
Amendment No. 166 has been overtaken by the Government acting to an even greater extent than we envisaged, but it would increase the notice period for an inspection from 24 to 72 hours, or from one day to three days. The Government have tabled amendment No. 222 which goes further and extends the notice period to seven days. That is beyond our greatest expectations, and we are extremely supportive of the Government in that regard, albeit with one caveat. An HMRC officer’s ability to bypass the notice period stipulated in paragraph 10(3)(b) means that the period of seven days, as detailed in Government amendment No. 222, would not necessarily apply in all circumstances. We are concerned that the circumstances in which it would not apply may be used by HMRC inspectors too freely and liberally. In other regards, amendment No. 166 has become redundant as a result of the Government’s own amendment.
Amendment No. 167, in my name, requires more senior accountability if no notice period is required. It follows the point I was making with regard to the previous amendment: because of reservations in our party regarding sub-paragraph (3)(b), even with the Government amendment I have just described, amendment No. 167 would replace the description,
“an authorised officer of Revenue and Customs”,
with a requirement that a first-tier tribunal give authorisation for the seven-day notice period to be bypassed. The tribunal is a more appropriate mechanism, because of its impartiality in such investigations, and it would provide greater protection for the taxpayer.
Amendment No. 168 says that notice must be given appropriately. This would remove paragraph 10(4)(c) which requires a notice to
“be left in a prominent place on the premises”.
My colleagues and I regard that as an inadequate safeguard, and would replace it with the requirement that the notice should be provided directly to the occupier or the relevant person in person, rather than merely being left in a prominent place on their premises.

Nick Palmer: There will be cases in which a business is no longer operating and, even if it is not formally defunct, there is nobody about. How would the hon. Gentleman pursue the issue in that case?

Jeremy Browne: It is not my job to pursue it, but I can see why the hon. Gentleman asks the question. The safeguard we are trying to enshrine in law is that, in the circumstances that he described, the person against whom the notice has been issued would not be presumed to have failed to comply if they did not realise they had received the notice in the first place. He gave an example in which a notice could be put in a prominent place in premises, although the intended recipient of that notice may not be there to receive it. In those circumstances it would be difficult to conclude that someone was failing to comply with HMRC investigations, if they did not even know that HMRC required them to comply. The task would then be for HMRC to identify and track down the individual concerned. The intention of the amendment is that it ought to do so. In most cases, however, the Committee will agree that it would be far more straightforward, and would involve pressing the documentation into the hand of the recipient, rather than assuming that they had received it. I accept that in some particular and exceptional cases that may present the HMRC with a greater challenge to achieve their objective.
Amendment No. 169, which is the final Liberal Democrat amendment in this group, protects the rights of the individual. Paragraph 10(5) requires the penalties of obstructing an officer to be explained in the notice, but it says nothing at all about the rights of the taxpayer against whom the notice is issued. The amendment would remove that provision, and insert a requirement for the notice to explain the rights of the occupier whose premises are searched and the rights of any person falling under the requirements of paragraph 10(1). In other words, the person whose tax position is the subject of the search can expect their legal rights in those circumstances to be formally explained to them.
The underlying concern, as touched on by other Members, is that occasionally, HMRC—and I shall put this delicately—has a zealous desire to fulfil its duties as effectively as possible. While that is admirable in many respects, it can mean that the person who is on the receiving end of that zeal feels that they are being unfairly and harshly treated, and that it is not sufficiently clear to them what their rights are in those circumstances. That is what amendment No. 169 seeks to address.
Government amendment No. 220 will restrict access for inspection, so that the tax position of the person whose business it is can be inspected, rather than “any person”, which was the original intention. It is specifically the owner of the business who will be required to comply. While my party welcomes attempts to add clarity and to specify the recipient of the notice, the change has raised some questions in my mind and in the minds of my colleagues, and it would be usefully if the Financial Secretary addressed them. Will documents relating to employees be excluded from inspection because they do not own the business? If we move, as the Government envisage, from “any person” to the person whose business it is, what is the status of people who are related to, or employed by, the business? Under a literal interpretation of Government amendment No. 220, such people will no longer be required to comply in the way that I think the Government would want.
I seek to be helpful in making a point about Government amendment No. 222. As I have already said, I welcome the extension of the notice period required for an inspection from 24 hours to seven days. Liberal Democrat amendment No. 166 was designed to extend that period, and the Government have more than doubled the period that we sought. We are grateful for the step that the Government have taken, but the Government amendment will not remove lines 24 to 26 of paragraph 10, which allow the notice period to be bypassed by an authorised officer of HMRC. Although Government amendment No. 222 is an extremely welcome step in the right direction, it would be helpful if the Financial Secretary addressed my reservations.

Nicholas Winterton: Before I call the hon. Member for South-West Hertfordshire, may I draw attention to amendment (a) tabled by Her Majesty’s Opposition? It is an amendment to a Government amendment. Should the Opposition wish to press it, although it appears on the amendment paper after Government amendment No. 222, it would have to be taken before it.

David Gauke: Thank you, Sir Nicholas, for your guidance to the Committee.
Like the hon. Member for Taunton, we welcome the Government’s flexibility on paragraph 10. It is an important provision that will give HMRC the power to inspect business premises. It has produced a fair amount of comment. We welcome the increase in the notice period before an inspection of premises from 24 hours to seven days. As you mentioned, Sir Nicholas, we have tabled amendment (a), which would extend that to 14 days. I hope that the Financial Secretary will not consider that this is an example where, if the Government give an inch, we seek a mile. I hope that we are not being unduly unreasonable.
It is always a question of judgment when assessing what is a reasonable period for any purpose. We started with 24 hours, the Liberal Democrats proposed 72 hours, the Government have said seven days and the Law Society and the Institute of Chartered Accountants have suggested 14 days. That is reflected in amendment (a). Where do we draw the line? Should it be 28 days, or even 42 days? I thought about tabling an amendment for 42 days and saying that we were adamant that that should not be reduced because it was a matter of confidence, but we decided not to pursue that route. However, there is an issue when people are sent a notice while on holiday, because the period may elapse while they are still away. That is the argument for extending it beyond seven days, but I do not want to be in any way churlish about the fact that the Government have moved from 24 hours, which would have been wrong.

Jeremy Browne: I wonder whether the hon. Gentleman’s concern about people on holiday might be addressed were the Government to concede the point that I was trying to make earlier about the notice being issued to the recipient in person, rather than just put in their premises so that they might happen to chance upon it.

David Gauke: Possibly. The hon. Gentleman makes a reasonable point in mentioning that as a way of addressing the issue. In these circumstances, the Government are worried that the person in question would receive the notice and then start destroying documents and concealing evidence. In that case, 24 hours leaves the Government vulnerable to that, as would seven days, 72 hours or 14 days. That is not what the Government have in mind. The concern here is an administrative one about how quickly they can come along, inspect the premises and look at documents contained there. There is no matter of principle on how long the period is, as it is just a matter of administrative convenience. In those circumstances, and in light of the representations that have been made by the Institute of Chartered Accountants and the Law Society, we urge the Government to show even greater flexibility and consider whether 14 days would be more appropriate. We look forward to what the Minister has to say on that.
With regard to paragraph 10 and the relevant amendments in this group, I encourage the Financial Secretary to give as much comfort as possible that the powers outlined will not be used over-aggressively. By that I mean that, where the taxpayer is looking to co-operate, HMRC will agree a date on which business premises will be inspected as a matter of course and that HMRC officers will be expected to reach agreement and not behave in a heavy-footed and determined way.

Jane Kennedy: Jack-booted.

David Gauke: I did not want to use the expression jack-booted, but perhaps it was what I was looking for.
We are looking for reassurance that HMRC officers will not be over-aggressive in laying down the law or say, “We are going to come in on a particular day, whether you like it or not”, but will seek to accommodate the reasonable requests of the taxpayer. A key point for the Financial Secretary to address in her response is reassurance that those powers will be used in exceptional circumstances, rather than as a matter of course.
Some of the amendments that we tabled, as was the case with those of the Liberal Democrats, have been rather swept up in subsequent Government amendments. However, I would like to highlight Government amendment No. 221, which includes the reference that we mentioned earlier about premises being
“used solely as a dwelling”.
I reiterate that I am not sure that that provides as much comfort as the Government perhaps wanted, as working patterns are changing and more people do some work from home. The definition of premises that are
“used solely as a dwelling”
is not as effective as it might be, given that the Government acknowledge the sensitivity about going to people’s homes. It is particularly acute in paragraph 10—more so than when we were referring to it in relation to the earlier group of amendments—when HMRC officers are going to be storming around someone’s home. There is a sensitivity there, which the Government recognise, given the first words of amendment No. 221, but is that sensitivity fully addressed when we have a tight definition of premises
“used solely as a dwelling”
as opposed to “solely or substantially used as a dwelling”?
Government amendment No. 225 reiterates wording that was in the original paragraph 10, which includes within the definition of premises “any means of transport”. I would be grateful if the Minister enlightened the Committee about what that means. Does it give HMRC the power to inspect people’s cars? What happens if a car is in a garage, for example? How would the amendment work and is it an exceptional provision? When will HMRC consider it necessary to inspect people’s cars?
Amendment No. 269 relates to regulations made under paragraph 58(3) for the Government to provide a definition of when someone is carrying on a business. I would like to know when the Government envisage that that will be necessary. To what circumstances does the provision relate?
On amendment No. 169, tabled by the Liberal Democrats, the hon. Member for Taunton raised the valuable point that the existing wording refers to the consequences of obstructing an HMRC officer, but does not say anything about the rights available to a taxpayer. I have no particular objection to the notice informing a taxpayer of the consequences of obstructing an HMRC officer, so I do not support deleting that reference, but it would be valuable for the rights available to the taxpayer to be known and for the taxpayer to be informed of them. Perhaps the Minister could provide some comfort in Committee by saying that people will be informed of their rights in the circumstances that we are considering. I reiterate that we are grateful for the Government’s showing some flexibility, but we seek reassurance that HMRC will use those powers only in exceptional circumstances and that it will seek to reach agreement with taxpayers about when business premises should be inspected.

Stewart Hosie: The Minister’s approach to Government amendment No. 221 is sensible: she has tabled it and is now listening to the comments on it. It, too, relates to powers to inspect or enter any part of the premises that is,
“used solely as a dwelling”.
I am concerned about the word “solely”. I can think of several trades or professions about which tax inspectors often have concerns—at a very low level, but none the less concerns. They include taxi drivers and semi-professional musicians who may be paid in cash. We all know about such things. I am concerned that someone might take a booking for a band for a wedding on a house phone, or phone up to organise insurance for the taxi on a house phone, and that that would negate the family home’s being
“used solely as a dwelling”.
I would like the Minister to confirm that the very low level use of a private house to carry out a small business transaction would not negate the description of the dwelling as being,
“used solely as a dwelling”,
and would not make it a business premises, which could then be entered. Other hon. Members have expressed anxieties about that. I would like confirmation that the guidelines will be robust, and that making a modest business transaction from the family home will not turn it from being solely a dwelling into a business premises, which can be entered or inspected under the powers in the schedule.

Nick Palmer: Government amendment No. 222 leaves out from “this” to the end of line 22. Do they not mean to the end of line 23? Amendments Nos. 168 and 253 seem to leave a gap for someone who has slightly dubious records, which they would not like to be subject to inspection. If I am conducting a business and I have such records, which I keep in my garage, so long as I am not present in my garage, the authorities would not be allowed to inspect them under amendment No. 168. Under amendment No. 253, the Government would not be allowed to inspect them at all because the garage is primarily used to park my car or store other materials. Those seem to me to be difficulties.

Brooks Newmark: Earlier in our deliberations on this part of the Bill, my hon. Friends the Members for Cities of London and Westminster and for South-West Hertfordshire lamented the fact that the new powers proposed in clause 108 and schedule 36 have appeared in a money Bill rather than in one sponsored by the Home Office. I share their concern that this territory should perhaps have been covered by the Solicitor-General or another Law Officer and been subject to debate in another place.
However, my hon. Friend the Member for Cities of London and Westminster also mentioned that he had served time—[Interruption.]

Nicholas Winterton: Is the hon. Gentleman going to rephrase that?

Brooks Newmark: I was hoping to finish the sentence. I paused to catch my breath. My hon. Friend served time on the Bill that created the Serious Organised Crime Agency and that experience proved useful. As luck would have it, last year I had the pleasure of serving on the Committee that considered the Tribunals, Courts and Enforcement Act 2007 and looked at several of the wider human rights issues that are in play here. I remember, for instance, our attempts to get assurances from the Government that bailiffs would be prevented from undertaking enforcement actions against premises where the occupants were women on their own, young children or other particularly vulnerable people.
Bailiffs and tax inspectors are two of the three classes of people least appreciated when they knock on doors, and their activities and powers should receive proper scrutiny. It is tempting to say that politicians out canvassing for votes are the third class of unwanted doorstep visitor, but I can only say that that was not my experience in Crewe and Nantwich or yesterday in Henley.
I admire the measured way in which the Financial Secretary has so far addressed this part of the Bill and I am sensitive to the fact that the new powers that it confers will be used by an agency for which she is the Minister directly responsible. Nevertheless, I am struck by the parallels between many of our concerns during consideration of the Tribunals, Courts and Enforcement Bill and the issues that are before us today.
The Financial Secretary said at our last sitting that HMRC’s consultative committee had evaluated the compliance of the new powers with the Human Rights Act and subsequently made changes. However, I want to place those provisions in the context of last year’s scrutiny of similarly invasive powers. For that purpose, the commentary of the Joint Committee on Human Rights on the Tribunals, Courts and Enforcement Bill, as it then was, is particularly helpful, not least because it expresses an opinion shared by the upper House, which is denied to us on the Finance Bill.
I want to quote briefly from the Joint Committee’s comments on the Government’s use of the sort of powers with which we are dealing. It said:
“In cases where the State is using, or authorising the use of, intrusive powers such as entry, search and seizure, we consider that the case for including minimum safeguards (such as the requirement that an enforcement agent should identify himself and the authority for his entry”
to
“the premises to an occupier without need for a request; the minimum period of notice required; the requirement that entry take place at a ‘reasonable’ time, and protection for material subject to legal professional privilege) on the face of primary legislation is particularly strong.”
I want to pick a couple of themes out of that warning. First, there is a need for sharp focus in primary legislation and, specifically in schedule 36, a sharp focus on precisely what will be regarded as carrying on a business, what qualifies as business premises and what will be regarded as business records. The Government’s position, as I understand it, is that only the use of premises solely as a dwelling lies outside the scope of the powers. As we have heard, that is a very uncompromising position and likely to drag huge—

Nicholas Winterton: Order. I am not sure that what the hon. Gentleman is raising is entirely relevant, but I will allow him to continue, otherwise he may seek a schedule stand part debate. If he raises the issues now, I am confident that he will not ask for that debate.

Brooks Newmark: Thank you, Sir Nicholas. You are right—I was trying to put in context the various amendments, which I will now get on to. The Government’s uncompromising position is likely to drag huge numbers of taxpayers, who live and work in the same place, into a net of potentially draconian new inspection powers.
In that context, amendment No. 269, which strikes out the commissioners’ ability to decide in future by regulations what constitutes a business, is perhaps the most important. There have, for example, been periodic warnings to taxpayers who make substantial incomes from buying and selling items on internet auction sites such as eBay but do not pay the correct tax on that income. The figures that I have seen suggest that 68,000 people make all or a substantial part of their living from selling things on eBay. Presumably, those people fall within the category that the Financial Secretary last week described as “ghosts and moonlighters”. Indeed, HMRC ran an advertising campaign on that issue last year, which a spokesman justified by saying:
“The overwhelming majority (of online sellers) are selling off unwanted goods. We are concerned with the minority conducting a business.”
However, the minority who may be conducting a business are presumably doing so from their own homes.
The question becomes whether someone can be said to be conducting a business merely by dint of regular use of an online auction site, and, by extension, whether that might justify the invasion of their homes by Revenue and Customs officers. I do not know if my hypothesis is valid, but I would not want the commissioners of the Treasury to be able to decide at a later date what constitutes a business. It would seem extraordinary if the home addresses of some 70,000 people suddenly became subject to inspection by Revenue officers because those people were suddenly deemed by regulation to be carrying on a business there for the purposes of the powers in the schedule.
Like my right hon. Friend—he is not quite right honourable yet, but I have huge aspirations for him—my hon. Friend the Member for South-West Hertfordshire, I am not reassured by Government amendment No. 221, which does nothing to narrow the potential scope of the powers. Buy-to-let landlords were also mentioned by HMRC last year, in the same breath as the clampdown on internet auctioneers. The Chartered Institute of Taxation goes a step further and expresses concern about whether the inspection powers will apply to lodgers or employees who take work home. If the Treasury has those kinds of situation in mind, it ought to be made explicit in primary legislation so that the reservations can be made equally explicit.
I welcome amendments Nos. 252 to 254, which would clarify the position for those who share their workplace and home, and introduce a little flexibility to the situations to which the new powers apply.
My second theme from the comments of the Joint Committee on Human Rights on invasive powers is the need for notice. I am not at all reassured by Government amendment No. 222, which seemingly gives with one hand while snatching away with the other. On the face of it, the occupier of the premises is promised a visit at a reasonable time by prior agreement with at least seven days notice. However, the notes to the amendment give cold comfort:
“The normal rule will be that the occupier of the premises must be given 7 days notice of the visit, instead of only 24 hours as required in the Bill. A shorter notice period (or no notice at all) may apply where this is agreed with the occupier or approved by an authorised officer of HMRC.”
The Government are not displaying an unambiguous commitment to a minimum period of notice and to reasonable conditions, which I believe taxpayers are entitled to expect. Perhaps the Financial Secretary will flesh out the situations in which she expects the normal courtesies to be suspended.
My final observation concerns the presence of adequate safeguards, which the Financial Secretary began to address in last week’s debate. In my view, safeguards should not be limited to the training and oversight of HMRC officers before the fact, but must include monitoring of the process going forwards. I want to close my remarks by quoting again from the report of the Joint Committee on Human Rights on the use of invasive powers:
“We consider that, without an effective means of monitoring and regulating the execution of the invasive powers provided by the Bill, there will be a greater risk that these powers may be used in a way which leads to a breach of Article 8 ECHR”.
That is a warning that resonates with the matters that we are discussing and I hope that the Financial Secretary will set out the way in which the operation of the new powers will be monitored and, if necessary, adapted and improved.

Peter Viggers: I thank the Financial Secretary for the helpful and thoughtful way in which she has introduced the amendments. It is very useful for us to hear her responses to our concerns. My central point is on amendment No. 269. My party is concerned that it is left to regulations and guidance made by the Government by secondary legislation to set out definitions. We would prefer to see definitions in primary legislation rather than delegated to regulations and guidance in secondary legislation.
A number of concerns have been expressed. The Chartered Institute of Taxation makes the very general point that HMRC should explain why it needs such wide powers to inspect business records anywhere and at any reasonable time. It makes the point in detail that it seems that HMRC is giving itself powers to enter a bank to check the bank records of an individual taxpayer in order to ascertain that taxpayer’s position. Does HMRC anticipate that it will take the power to enter a business premises, namely a bank, to check the tax and financial records of an individual taxpayer?
Under paragraph 10(4), a visiting officer is required to give a notice to the taxpayer. It would be helpful if HMRC could confirm that that notice to the taxpayer will contain a statement of the taxpayer’s rights and will not be just an implied threat, as suggested in paragraph 10(5).
An important point was made by my hon. Friend the Member for Braintree when he pointed out that while the legislation seems to restrict the rights of HMRC to business premises, the definition of business premises is nevertheless very widely drawn in amendment No. 221:
“‘business premises’, in relation to a person, means premises (or any part of premises) that an officer of Revenue and Customs has reason to believe are (or is) used in connection with the carrying on of a business by or on behalf of the person.”
That definition is extremely broad, bearing in mind not only the older habit of taking work home, but the increasing use of computers at home. There cannot be many people engaged in business practice who do not have in their house a computer capable of being used for pulling out records, or for other business purposes. Any home with such a computer would seem to be included in that definition of business premises. Specifically, I would like to ask the Financial Secretary whether that definition would include domestic premises where a lodger pays for residence.
I have two further detailed points. Where HMRC makes unannounced visits, will it assume responsibility for the health and safety of the visiting officers, and have that responsibility enshrined in legislation? On building sites in particular, and on various other premises, it will not necessarily be safe for untrained personnel to visit unannounced, to inspect any part of that premises and its contents. It would seem unfair for such risks as may be entailed to be imposed upon businesses, namely on the owner-occupier of the premises.
Where an HMRC officer wishes to take a copy of a document that has been produced to or inspected by him, will HMRC bear the cost, which could be considerable if the document is extensive? I am grateful for the opportunity to ask those questions, and I look forward to the Financial Secretary’s response.

Jane Kennedy: This discussion has been useful. In response to what the hon. Member for Gosport said regarding secondary legislation, we regularly debate whether certain details of legislation should be primary or secondary, but the aligned powers that we have discussed leave relatively little to secondary legislation. Following the changes, more provisions governing the conduct of HMRC will be dealt with in primary legislation than before. For example, the review’s work on penalties has seen the framework for the mitigation of a penalty for an incorrect return brought out of guidance and put into primary legislation. There are times, however, when secondary legislation is more appropriate. In this package, the only provisions left to secondary legislation are those that provide the detail—for example, those clarifying what is and is not a business or a statutory record—and those that need to respond quickly to external changes, such as those on credit card fees.
Before turning to the detail I will make a general point. The Committee will hopefully be reassured by the fact that training will be really important to HMRC in exercising the new powers. I anticipate that HMRC will make what I describe as a culture change. At the moment, over 25,000 compliance staff in HMRC are undergoing training on the penalties changes that were made in the Finance Act 2007. The same e-learning package is available online to tax practitioners and the public, and it has been well received.
I turn now to the detail of the amendments. Paragraph 10 of schedule 36 introduces the power to enter and inspect business premises of taxpayers and third parties for income tax, corporation tax and capital gains tax purposes. Previously that power has been available for VAT and PAYE inspections in the UK, and it exists in other OECD countries. It is not an unusual power, but its operation quite rightly concerns the Committee.
At the same time as extending the power to other taxes, the opportunity has been taken to build in a number of taxpayer safeguards not present in the existing VAT and PAYE provisions. Our amendments seek to strengthen further those new safeguards in the light of the representations that have been made by the Chartered Institute of Taxation among others. They did say when they saw the January consultation documents that they felt the suggestions on visits to business premises seemed reasonable.
The first change that we are making is to restrict the circumstances in which third-party premises can be inspected. As drafted, paragraph 10(1) allows HMRC to inspect any business premises in order to check the tax position of any person. It is modelled on the existing VAT power to enter and inspect premises and it is applied to all tax checks. The circumstances in which HMRC will need to visit the business premises of a third party are essentially those where officers wish to check on the movement of goods.
I hope to reassure the hon. Member for Taunton who asked about the position of employees. A number of other Members mentioned this. I reassure him that employees of the business are excluded from inspection. They are not business taxpayers. Their homes are not business premises for the purposes of this part of the schedule. Our amendments Nos. 219, 220 and 221 therefore change or omit references to “any person” as appropriate to refer instead to the person whose tax position is being checked. The effect is that revised paragraph 10 will provide the main rule that the business premises that HMRC may inspect must be premises used by the person whose liability is being checked. This is subject to new paragraph 10A, which is introduced by the main part of amendment No. 221.
That part does a number of things. First, it provides that the power of entry and inspection does not extend to any part of premises used solely as a dwelling. That is an important new taxpayer safeguard. The hon. Member for Dundee, East gave a good example of an individual musician. I hope to reassure him that it would be very unlikely that these powers of inspection would apply in that sort of example.
A fair question would need to be asked: what business activity would take place that it would be reasonable for HMRC to inspect in that individual’s home? It is unlikely that part of the home would be used just for business. We will make it clear in guidance so that people in those circumstances ought not to feel that this would apply to them.
Amendment No. 221 also deals with the definitions of business assets, business documents and business premises and it redefines business premises in relation to a person.
As I have just mentioned, the amendment inserts new paragraph 10A in schedule 36. That maintains the current rule that third-party premises may be inspected where broadly speaking they are being used in connection with the supply of goods. There is an added restriction that premises used solely as dwellings are excluded. It is important that HMRC retains the power to inspect third-party business premises, goods on those premises and documents relating to those goods in order to combat large-scale VAT fraud. The hon. Member for South-West Hertfordshire asked a number of questions, including about vehicles, which I will come to in a moment.
I want to deal with the questions raised by the hon. Member for Taunton who asked whether we could get an idea of the scale of the number of visits and where disputes might arise. In 2007-08, the last year for which we have figures, HMRC carried out approximately 12,000 unannounced VAT visits, 5 to 10 per cent of total visits carried out. I expect there will be fewer visits in the future but taxpayers refused a visit or complained about a visit in only 44 of those cases, so I hope that sets the context within which we are discussing these matters.
The hon. Member for South-West Hertfordshire asked about a taxpayer who was on holiday. I will come in a moment to an example of the type of premises where there would be nobody present, but he asked what would happen if the taxpayer was temporarily not present. The visit will normally have been arranged by phone and confirmed in writing, so the taxpayer should be aware of the visit. Guidance will cover matters such as providing a copy of the appointment letter and when it is appropriate to rearrange a visit. The seven days that we are suggesting is the minimum notice we would anticipate being given.
The hon. Member for Braintree made an entertaining speech. Being an eBay shopper myself, I encourage him to continue to defend the interests of eBay sellers, but on the detail of what he was asking for, it is appropriate that we deal with that in the guidance. I know that that is not a popular answer in Committee, but that sort of very close detail is better worked out through guidance and in discussion with the representative bodies, which will, no doubt, make their views clear when the guidance is published.
Amendment No. 222 modifies the rule on the amount of prior notice to be given to an occupier that an inspection of the business premises is to be made. Much has been made of this. We now know that our amendment has found a third way between the ways proposed by the Liberal Democrats and by the Conservatives. It is worth mentioning again that is no minimum notice period is set out in the existing VAT and PAYE legislation. It is considered that most businesses should have no difficulty in accommodating a visit within a week’s notice. If there are good business reasons for delaying it by another week, HMRC will of course listen to those representations.
As a public body, HMRC is required to act reasonably. It will not make a visit at a time when it is known to be particularly inconvenient. Normally, HMRC would telephone the taxpayer—we are back to the co-operative way of working that I am pleased to see HMRC developing. A phone call would be made in advance of a notice being issued, and that phone call would agree a convenient time and date for a visit. It is very unlikely that a notice would ever be issued out of the blue. Seven days is a minimum, partly chosen as it is the longest period which could be given without interfering with HMRC’s aim—the hon. Gentleman is right to say it was an administrative reason—to deal with repayments in 10 days. Since many visits are undertaken to verify a repayment claim, we did not feel it was right that the legislation should inhibit HMRC’s ability to meet its target.
I hope the Committee will welcome the fact that we have listened to representations made since the Bill was published. We have tabled a number of amendments.

Jeremy Browne: Before the Minister moves on to fresh territory, will she respond to the point I made earlier about the number of cases in which the seven days would not apply—in other words, special exemptions—because the reassurance that the Committee could draw from the seven-day limit would be lessened were there to be routine use of exemptions.

Jane Kennedy: I will come to that point in a moment, but first let me say that the Government amendments other than those I have already mentioned mainly correct miscellaneous errors—surprising, but they do occasionally happen. Amendment No. 225, discussed by the hon. Member for South-West Hertfordshire was, I thought, consequential on amendments just discussed. He asked what means of transport might be subject to inspection. I am advised that that might refer to businesses such as mobile chip vans and market stalls run from vans. It does not mean that a car is a business premises. However, a car could be a business asset and would be inspected differently. I hope that that answers his question.
I should like to deal as quickly as I can, while giving a reasonable answer, with the amendments tabled by the two Opposition parties. Amendment No. 165 is unnecessary, as it is well understood that the term “inspection” does not extend to a right to search, and the term has worked in the past for VAT and PAYE inspections. There is also the new safeguard that only the statutory records of the business can be inspected on the premises—again, that is a reining in of some of the powers that inspectors have had in the past. The hon. Member for Taunton said last week that he had never had the opportunity to vote for removing and reducing inspectors’ powers; well, here we are inviting him to do exactly that. Secondly, the reference to any person to whom paragraph 10(1) may apply would not work properly if the premises being inspected are not those of the person whose tax position is being checked.
On amendment No. 167, another new safeguard would require unannounced visits to be pre-authorised by a senior, experienced officer in HMRC. The hon. Member for Braintree was over-dismissive of that provision, which will ensure that the need for such a visit has been critically examined at an appropriate level within HMRC. It would be heavy-handed for the first-tier tribunal to be involved in every case where an unannounced visit is considered necessary. However, the tribunal will have to pre-authorise any visit in respect of which HMRC intends to levy penalties against any person for obstructing a visit.
Amendment No. 168 would bring in yet another new safeguard that is not present in existing legislation—a requirement for the officer making an unannounced visit to provide a written notice to the occupier or the person who appears to be in charge. In cases where no one appears to be in charge, the notice must be left in a prominent place on the premises. That might ensure that there is evidence of a visit to an unmanned commercial car park, for example. It is right and proper that HMRC should be able to be able to visit unoccupied business premises and it should be right and proper that a notice of their visit is left on those premises. There is no right to force entry to premises, so I anticipate that the number of times that such a notice would be left and such an inspection would be made would be limited.
Amendment No. 169 proposes changes to what the Bill specifies that the notice of a visit should contain. It is important that the occupier should be made aware of the consequences of obstructing the officer in the exercise of their duties. I think that paragraph 10(5) should remain, and I hope that I can reassure the Committee. It would be impractical for a notice to specify all the rights of the occupier in such circumstances, but I envisage that the occupier will always be given a copy of a written code of practice governing unannounced visits that sets out their rights. A draft of that code of practice was published in January with the consultation document, and the final version will be drawn up with considerable input from representative bodies.
I have read amendment No. 252 again while listening to this debate. I am not sure that it makes sense.
Amendments Nos. 253 and 254 together would change the definition of “business premises” in paragraph 10(7). The right criterion for defining business premises is that they are used in connection with carrying on a business. Premises should be treated as business premises that are liable for inspection even if they are not so used “wholly or mainly”. Adding the words
“or from which a business is substantially carried on”
would introduce new uncertainty into the Bill. Cases where business use is insignificant—for example, someone taking work home—will be covered in guidance which will be drawn up with input from representative bodies.
Amendment No. 269 would delete paragraph 58(3). The power to make regulations has been included in a taxpayer-friendly measure to remove possible uncertainty about what constitutes a business. I hope that is of some comfort to the hon. Member for Gosport. It will remove uncertainty as to what constitutes a business and, therefore, as to whether premises being used are business premises. It will also be possible to specify that a particular group of persons should be given comfort that they will not be visited—for example, certain clubs, societies or charities.
I hope that I have answered all the points raised in debate. I therefore commend the amendment standing in my name, and hope that the hon. Members who have spoken to their own amendments have been sufficiently reassured not to press them.

Jeremy Browne: I say in a spirit of good will that, although a number of concerns have been raised, and it was right and proper that we should have dwelt on this part of the legislation at some length because it is about defending the liberties and rights of the individual citizen, it is welcome that the Government have shown some movement and willingness to listen. I take on board the points the Minister has made. In many cases I would have wished to see them go further; nevertheless, it is right to acknowledge that there has been progress, particularly in relation to amendment No. 169.
I welcome the fact that the Minister envisages that a code of conduct will be made available to the people who are being inspected. I do not fully understand how the transition is made between her envisaging that being the case to people actually receiving a copy of the code. She said there will be consultation and what the time scale is, and I am sure that can be resolved within her Department. It would balance the powers of the HMRC inspector if the person being inspected was empowered to some degree to know where they stood with regard to their rights in those circumstances. That would be a welcome development.
We are also happy to withdraw our modest proposal for a 72-hour notice period and to accept that triangulation is not yet a dead concept in new Labour, although it may be close to the end of its lifespan. We support the proposal of a week as a reasonable period.
On that note, with the caveat that we would still like to have seen greater safeguards provided for the people being inspected, we acknowledge that this has been a useful debate. The Minister has provided on the record much welcome clarity and made some worthwhile concessions and on that basis I seek your leave—do I beg it or seek it, Sir Nicholas, or just request it?

Nicholas Winterton: I have to say to the hon. Gentleman that he does not have to do either.

Jeremy Browne: Because the Government amendment is the lead amendment.

Nicholas Winterton: Indeed.

Jeremy Browne: I am getting better and better. In that case, I merely express my gratitude for your willingness to listen to my contribution.

David Gauke: I think this has been a useful debate and I do not think there are enormous divides among us on the issues. I am grateful to the Financial Secretary to the Treasury for saying that, where possible, HMRC will seek to work in a co-operative manner with the taxpayer and that the use of the powers in paragraph 10 will not be abused or used as a matter of course.
I would like to come back to the right hon. Lady on the question of seven days’ notice. She argued that the target for HMRC is that repayment cases are dealt with in 10 days, so a 14-day period would create some administrative difficulties for HMRC. This is a reasonable point to some extent, although it is worth noting that, under amendment No. 222, it is possible to agree any time. It does not have to be after the seven days; it could be tomorrow, for example. One would expect that in the circumstances of a repayment, the taxpayer might be quite enthusiastic about having a meeting sooner rather than later. I simply draw that point to the Committee’s attention. I do not think that it is a killer argument as such—the period of 14 or seven days would come into effect when no agreement can be reached between the occupier of the premises and HMRC. None the less, the Government have moved ground. We will not press the amendment to a Division.
Had the final consultation period not been quite so rushed—I do not want to go over old ground, nor do I wish to be churlish—the Government’s position on notice periods might have emerged slightly earlier than during the Committee stage. That is not to say that the fact that it has emerged at this stage is unwelcome.

Jane Kennedy: We normally say that we keep all legislation under review. I have made clear the intent of the period of notice and that it may be a minimum, but that it may also be reduced if there was an agreement with the taxpayer. I undertake to review the operation of the measure to ensure that a period of seven days, where an agreement cannot be found, is reasonable and works as I anticipate it will.

David Gauke: That is an extremely helpful intervention. I am grateful to the Minister. I am sure that those reading the record of these proceedings will be pleased to know that that the Minister will review the matter to see how it works and whether it creates difficulties. I can envisage circumstances where someone is away or does not receive the notice until late in the seven-day period, particularly if he seeks to obtain legal advice, which can take a bit of time, too.

Amendment agreed to.

Amendments made: No. 220, in schedule 36, page 355, line 17, leave out third ‘the’ and insert ‘that person’s’.
No. 221, in schedule 36, page 355, line 18, leave out ‘of any person’ and insert—
‘() The powers under this paragraph do not include power to enter or inspect any part of the premises that is used solely as a dwelling.
() In this Schedule—
“business assets” means assets that an officer of Revenue and Customs has reason to believe are owned, leased or used in connection with the carrying on of a business by any person, excluding documents,
“business documents” means documents (or copies of documents)—
(a) that relate to the carrying on of a business by any person, and
(b) that form part of any person’s statutory records, and
“business premises”, in relation to a person, means premises (or any part of premises) that an officer of Revenue and Customs has reason to believe are (or is) used in connection with the carrying on of a business by or on behalf of the person.

Power to inspect premises used in connection with taxable supplies etc
10A (1) This paragraph applies where an officer of Revenue and Customs has reason to believe that—
(a) premises are used in connection with the supply of goods under taxable supplies and goods to be so supplied are on those premises,
(b) premises are used in connection with the acquisition of goods from other member States under taxable acquisitions and goods to be so acquired are on those premises, or
(c) premises are used as a fiscal warehouse.
(2) An officer of Revenue and Customs may enter the premises and inspect—
(a) the premises,
(b) any goods that are on the premises, and
(c) any documents on the premises that appear to the officer to relate to such goods.
(3) The powers under this paragraph do not include power to enter or inspect any part of the premises that is used solely as a dwelling.
(4) Terms used both in sub-paragraph (1) and in VATA 1994 have the same meaning in that sub-paragraph as they have in that Act.

Carrying out inspections
10B’.
No. 222, in schedule 36, page 355, line 19, leave out from ‘this’ to end of line 22 and insert
‘Part of this Schedule may be carried out only—
(a) at a time agreed to by the occupier of the premises, or
(b) if sub-paragraph (3) is satisfied, at any reasonable time.
(3) This sub-paragraph is satisfied if—
(a) the occupier of the premises has been given at least 7 days’ notice of the time of the inspection’.
No. 223, in schedule 36, page 355, line 40, leave out from beginning to end of line 10 on page 356.—[Jane Kennedy.]

Colin Breed: I beg to move amendment No. 173, in schedule 36, page 357, line 39, leave out from first ‘notice’ to end of line 40.

Nicholas Winterton: With this it will be convenient to discuss the following: Government amendment No. 224.
Amendment No. 291, in schedule 36, page 358, line 30, at end insert—
‘Provided that this condition shall not be met one year after evidence of facts, sufficient in the reasonable opinion of the Commissioners to justify the making of the assessment or the withdrawal of the relief, have come to their knowledge.’.
Amendment No. 255, in schedule 36, page 358, line 40, leave out ‘6’ and insert ‘4’.
Amendment No. 256, in schedule 36, page 358, line 41, at end insert—
‘20A An information notice given for the purpose of checking the tax position of a company that has ceased to exist may not be given more than 6 years after the company ceased to exist.’.
Amendment No. 258, in schedule 36, page 359, line 6, at end insert ‘or
(b) such a claim could have been maintained if the information or document had been obtained in the course of correspondence between a lawyer and a client’.

Colin Breed: Amendment No. 173 is very simple. We believe that the cut-off period of six years should be absolute, with no caveat or indication that it could be extended in any way. Part 4 of schedule 36 concerns restrictions on powers and amendment No. 137 would delete words from the paragraph that deals with old documents. Paragraph 18 deals with old documents states that HMRC cannot issue an information notice requiring a person to produce a document if that document is more than six years old on the date that the notice is issued. However, that wording provides a caveat. We believe that the inclusion of those words will unfairly allow HMRC to require a person to produce a document that is more than six years old. The Chartered Institute of Taxation has argued that older documents may legitimately have been destroyed and replacements not possible to get. Six years is a lengthy period and it is well known by many people, who believe that once they have got to that stage, they can get rid of documents.
It is not reasonable for taxpayers to have to keep documents for potentially a very long time just in case they may be required at the whim of an authorised officer. The six-year period, which has persisted for some time, is appropriate and should not be qualified or subject to caveats in any way. Six years should be the absolute cut-off and amendment No. 173 seeks to make it so.

David Gauke: I will speak primarily to the amendments in my name and the names of my hon. Friends. I will also be interested in the Government’s response to amendment No. 173 and their explanation of Government amendment No. 224, although I think that we are sympathetic to that one—I will leave it at that at this point.
Amendment No. 291 relates to an issue raised by the Law Society. It would amend paragraph 19, which sets out part of the protections for the taxpayer against the powers in schedule 36. The premise of the paragraph is that a notice cannot be issued in relation to a taxpayer if that taxpayer has already filed a tax return, but that is subject to exceptions. Concerns have been raised that one of the four exceptions, condition B, is so broad that essentially it waters down the protections contained within paragraph 19. Condition B provides that the information powers can be used if an officer
“has reason to suspect that...an amount that ought to have been assessed...may not have been”
or that
“an assessment...may be or has become insufficient.
That appears to mean—at least in the Law Society’s view—that if HMRC has not assessed an amount of tax that it should have, it can simply start to issue information notices under schedule 36. I would be grateful for the Minister’s view on whether that concern is reasonable.
The solution produced by the Law Society is that condition B should be subject to the qualification that if the relevant facts have been known to HMRC for one year, it cannot use the powers in the schedule 36. In other words, HMRC should not be able to use the powers in the schedule if the information is already available to it but it has simply failed to act upon it. That is the reason behind amendment No. 291.
Amendment No. 255 relates to the period of time available for assessing a deceased person’s tax position and has to be looked at in conjunction with paragraph 11 of schedule 39, which will alter the existing period from six years to four years after the end of the assessment year in which death occurred. Both the Law Society and the low incomes tax reform group have made the point that it seems illogical that paragraph 20, as currently drafted, will give HMRC powers to seek information for up to six years after a person’s death, whereas the period of assessment in schedule 39 is only four years, or four years plus the relevant year. There appears to be an inconsistency; will the Minister explain whether that is the case and the purpose of allowing information notices to extend six years after a person’s death?
Amendment No. 256 seeks to impose a parallel provision to the present arrangements through paragraph 20 for companies, although we see no reason for not having the six-year norm in these circumstances. It would amend schedule 36 so that an information notice could not be given
“more than 6 years after the company ceased to exist.”
There is obviously a practical issue about record keeping for companies that have not been in existence for a long time.
Amendment No. 258 relates to the rather thorny issue of legal professional privilege. I should declare an interest, or perhaps the reverse of an interest, because I am a non-practising solicitor and remain on the Law Society’s roll of names. More specifically, I should declare that my wife is a tax lawyer. The fact that the provisions appear to favour tax lawyers over tax accountants has excited considerable interest in the representations that we, and no doubt the Minister, have received from the Institute of Chartered Accountants and other accountancy bodies. However, no other representations on that point have been received from the Law Society, because it represents a continuation of the existing position, whereby the protection provided for documents produced for the purposes of providing legal advice is somewhat wider than that given for documents provided by tax advisors and auditors.
Paragraph 21 relates to legal professional privilege, and paragraph 22 relates to tax advisors. What causing considerable concern within the accountancy profession is not so much advice documents, for example, being produced by a tax advisor, because when that advice is held by the tax advisor, he will benefit from the provisions in paragraph 23. The difficulty arises when that advice is provided to the taxpayer, as it would appear that paragraph 23 will no longer provide any protection. Therefore, HMRC can seek to obtain that advice from the taxpayer and no privilege is provided. However, as far as paragraph 21 is concerned, when dealing with a lawyer, the privilege protection applies when the advice is in the hands of both the lawyer and the client. There appears to be an inconsistency, and I would be grateful if the Financial Secretary explained the reason for it.
This issue goes back to the historical development of legal professional privilege under our common law system. It goes back to a time when a defendant was not able to make representations to a court and had to rely on his lawyer to make them for him. I do not want to bring into question the whole basis of legal professional privilege; my former colleagues would never forgive me. However, there is a purpose behind that privilege.
It is presumably right that people should be encouraged to seek professional advice to guide them in difficult circumstances. Tax matters can be difficult. The taxpayer does not want to find himself in a worse position as a consequence of seeking advice to ensure that he does what is in his interests and in compliance with the law. As I have said, I think that the proposals are a continuation of what we have had until now. The Financial Secretary may differ from that view. If we continue with the existing position, this is a missed opportunity because this is a fundamental review of powers.

Peter Bone: As my hon. Friend said, this is not a new situation. It has consistently rankled with members of the accountancy profession that in effect they cannot talk freely to a taxpayer and a taxpayer cannot talk freely to them for fear that what they say might be exposed to the Revenue.

David Gauke: I am grateful to my hon. Friend who comes from a different profession to me. That is a long-standing complaint and this is an opportunity to do something about it. There does not appear to be anything within the provisions that addresses that complaint, which creates difficulties in the relationship between an accountant and his or her client. It also creates a market distortion because there are circumstances in which the legal profession has an advantage over the accountancy profession.
Particularly in the context of tax advice, the line between the two professions is relatively narrow. What is legal advice, what is accountancy advice and what is simple tax advice is not always clear. There is some crossover between what the two professions do and there appears to be an advantage to the legal profession. That raises a concern because, by and large, it is big businesses and wealthier private clients who go to the legal profession for tax advice; they may also go to the accountancy profession, but the clients of tax lawyers tend to be bigger businesses and wealthier families. Some of the protections contained in paragraph 21 will therefore essentially be available only to those bigger businesses and wealthier families and not to smaller businesses and less wealthy private individuals or families because they will not be extended to auditors and tax advisers. There is therefore a distortion that could be seen to be unfair.
This seems to be an opportunity to address those concerns. If there are reasons why the Government are not able to address them in this Bill or schedule, I should be grateful if the Financial Secretary would explain why that is and whether there is any prospect of this long-standing complaint of the accountancy profession being addressed at any point. Were we to start afresh in this field it would be very difficult—and I speak as a lawyer—to justify the way that privilege works at the moment. Therefore, some indication as to whether the Government will look at this more widely would be welcome on these benches.

Jane Kennedy: The information powers may require documents to be produced if they are reasonably required to check a tax position. Of course, HMRC will not seek documents if, because of the operation of time limits, it would be unable to assess liability disclosed by the documents.
Where there is deliberate error by a taxpayer, the general rule is that HMRC may go back and recover tax for the previous 20 years. Any evidence about tax liability for those earlier years may be contained in documents that are themselves several years old. The effect of amendment No. 173 would be that HMRC could never require production of a document that originated more than six years before the date of the information notice. It would mean that no old document could ever be sought in an information notice despite its being essential for the accurate determination of liability. Documents more than six years old can only be accessed with approval from an authorised officer who will be a suitably experienced senior official. Together with the protection provided by the assessing time limits, these are an effective group of safeguards. I will explain a slight doubt in my voice in a moment when I come to some of the detail.
HMRC needs to be able to look at old information in a range of routine checks. Where, for example, capital gains, capital allowances or stock are being sold, the original purchase may well have taken place more than six years ago. It is right, therefore, that HMRC can access old documents in appropriate circumstances and acceptance of this amendment would prevent that from happening.
Government amendment No. 224 reinstates some words that were omitted when the Bill was printed. The words were inadvertently omitted and reinstating them would give clarity to the legislation. It does not work properly without them. I am grateful to the hon. Member for South-West Hertfordshire for saying that he agrees with it. The Institute of Chartered Accountants in England and Wales notified us of the omission, although, of course, we had already spotted it.
If the enquiry window has passed, sub-paragraph (6) provides that the officer must have reason to suspect some further tax is due. That is essentially the same as the existing direct tax rule but providing further taxpayer safeguard in that the “reason to suspect” test is a higher one than the existing “may contain information relevant to a tax liability” test. The amendment seeks to import an additional test; that is “the evidence of facts rule” from the VAT legislation.
Direct tax checks are in their nature different from VAT checks and there is good reason for the present different tests that these proposals retain. Having an evidence of facts rule in direct tax could lead to numerous assessments for the same year as more information came to light, which would not be a taxpayer-friendly outcome. In workshops held by HMRC in 2007 there was no enthusiasm either within HMRC or the representative bodies to change the respective direct tax and indirect tax tests with which everyone is familiar.
Turning to the treatment of deceased taxpayers’ affairs, amendment No. 255, tabled by the hon. Member for South-West Hertfordshire, seeks to align the period for which information can be sought with the assessing time limit. Six years was retained to ensure that HMRC can obtain information about the affairs of the deceased where there has been failure to take care or deliberate error during the person’s lifetime. Where the deceased was also involved with a company, it may be that tax can be assessed on the company even though HMRC is out of time for assessing the deceased. That may require information in the extra two years. The four-year time limit only applies to assessments to charge tax not attributable to careless or deliberate error.
If the information is needed within six years of death in connection with an assessment for failure to take reasonable care, it is right that HMRC has the power to obtain it. In considering this, I have been thinking hard about the amendment proposed by the hon. Member for South-West Hertfordshire and I may wish to revisit the issue later in our consideration on the Floor of the House. On the six-year restriction, I hear the point that people should not have to keep records for a long time. People have to keep records only for as long as the record-keeping requirements tell them to. [Laughter.] Information can be requested only if it is in the person’s possession or power. I must admit that I smiled when I read the advice. There is some attraction to the idea that the assessment time and the powers to require documents to be produced should be aligned. I would like to consider that further, particularly as when I asked for advice on how often we use the powers, I was told that we do so very rarely. It is mostly in cases of fraud or when old capital gains tax cases are being pursued. I hope to return to that issue.
I come now to amendment No. 256. In practice, HMRC is very unlikely to pursue the affairs of a ceased company—we move from a deceased person to a ceased company—as it will be unable to assess any discrepancies found in relation to the company unless there has been fraud by the directors, in which case the assessment can be made on those directors. The protection provided by the assessing time limits provides a sufficient safeguard without the amendment.
I shall now deal with amendment No. 258. Paragraph 21 of the schedule enshrines the common law principle of protection given to communications between lawyers and their clients. That protection existed in section 20 of the Taxes Management Act 1970, and the new legislation clarifies that that applies across all relevant taxes. I recognise that there is a problem in this regard. I can see that a large firm that might be providing financial and tax advice using accountants in the firm can use the cover of the fact that there are solicitors in the firm and that gives it a professional advantage over smaller firms. I have discussed that with the organisations concerned about it and I want to give it further thought. I cannot give an undertaking at this point. I am more attracted to amendment No. 255, but this is in the legislation on the insistence of the Ministry of Justice and, being part of a joined-up Government, I of course support that entirely. It could be argued that the common law principle was protection enough, but representative bodies were keen to preserve the protection in tax law. Therefore, paragraph 21 achieves that.
If amendment No. 258 is designed—it is now clear that it is—to clarify that privileged information in the hands of third parties is protected on the basis that the common law principle will prevail, it seems unnecessary. Information giving tax advice is protected in law for auditors, tax advisers or lawyers while it is in the hands of those professionals. Information in the hands of the taxpayer is protected in law only if it is advice given by a lawyer. The Committee may find that distinction helpful.
The hon. Member for South-West Hertfordshire will know from the tone that I have taken in replying to him on the question of legal privilege that my heart is not entirely in the position, but the protection for legal privilege is very important. If we extended it as widely as suggested in the conversations that I have had with those making representations, I would be concerned that we would extend it too widely, but perhaps the hon. Gentleman will allow me to give the issue further thought. If the Committee will agree Government amendment No. 224 and the hon. Member for South-East Cornwall will withdraw amendment No. 173, I hope that we can make progress.

Colin Breed: Although I believe that clarity and certainty are to be preferred and would not undermine the process, I am prepared to seek leave to withdraw the amendment.

Nicholas Winterton: I should have called Mr. Gauke first, because the amendment is in the name of the hon. Member for South-East Cornwall and I suspect that half a minute might suit Mr. Gauke. I will call Mr. Gauke and then the hon. Gentleman who speaks for the Liberal Democrats can say what he wishes to do.

David Gauke: I shall see what I can do, Sir Nicholas. I am grateful for the clarification that taxpayers are required to keep records only for as long as the record-keeping requirements require.

Nicholas Winterton: Order. I had hoped that we would complete the consideration of this group of amendments, but my error in not proceeding with the hon. Member for South-East Cornwall has prevented us from doing so.

It being One o’clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o’clock.